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How can I best prepare my company for sale?
Too often business owners don’t think about business succession or exit planning until they are considering or looking to sell their business. The simple fact is most business owners are not prepared for succession of management or transition of ownership. Whether you are planning to sell to a third-party buyer or insiders of the of company, selling a business is a complex scenario and can often include delicate matters involving family members and/or a loyal employee base.
A buyer does not want to pay any more than they have too for a business. And conversely, a seller wants to command as much as they can in the sale of their business so here are seven tips in preparing your business for a sale to improve your outcome as a seller:
1. You should develop or update your business plan. Preparing a business for sale is a different kind of conversation than running the day to day operations. Begin to operate your company with the end in mind, even if you are 5-10 years away from potentially selling. Work with your CPA firm to Identify the challenges and opportunities of your company as well as what distinguishes your business from the competition. While working with your CPA firm include a viable strategy that speaks to sustainable growth.
2. It is important to build a solid management team. A sustainable management team that can execute on the vision and goals of the company independent of the ownership group will command top dollar in a sales transaction.
3. Buyers will look much more favorably on a business with up-to-date, reliable and cost-effective IT systems. This may mean investing in upgrades that make your company a “plug and play” proposition for a new owner. Automation, efficiency, and analytics are keys to profitability in the business world today.
4. Be realistic with the value of your business. Not knowing what your business is realistically worth to a third-party buyer can kill a deal before it starts. To be realistic, consider the services of a business valuation professional. This will lessen the likelihood that you’ll leave money on the table or be distracted by unrealistic offers.There are several ways a valuation professional can be of assistance based on your needs.
5. Any educated buyer will want to perform financial due diligence of your company so it is important to clean up your books. Value can be added by removing non operating assets that aren’t part of normal operations, minimizing inventory levels, and evaluating the condition of capital equipment and debt-financing levels. There may be some housekeeping you need to do with your CPA before your willing to share your books.
6. Seek tax advice early in the sale process — before you make any major changes or investments. Recent tax law changes may significantly affect a business owner’s tax position. Deal structure is vitally important, will your buyer want to buy your assets or the stock of the company? What do you want to sell, the assets of the company of the stock? This is why we need to talk it out.
7. Prospective buyers will request a litany of documents as part of their due diligence. It is important to work with a professional to package those documents to make a good impression on a potential buyer. Knowing what documents to both prepare and provide is directly correlated to any offer price you may receive.
Business and Succession planning should play a role in every business owner’s long-term goals. Starting with the end in mind as you run your company going forward will likely pay dividends in the form of a higher sale price. Selling the business may be the simplest option, but there are many other ways to transition ownership. Please contact our FMA, C.P.A. for further ideas and information.
And that was another Question ForMy Account. If you have a question call on FMA CPA and let us show you the way.